Consumer confidence up – but vulnerable

03.Consumer confidence up - but vulnerable

Garry Shilson-Josling, AAP Economist


(Australian Associated Press)

Consumers are more confident, but their mood depends heavily on the economy vindicating their high hopes.

Even then, they’re still a long way short of ecstatic.

It’s a measure of the melancholy afflicting consumers since the gloss quickly wore off the Abbott government that Westpac’s chief economist Bill Evans called the latest reading from the monthly Westpac-Melbourne Institute consumer sentiment index “a cracking result”.

The index rose to 101.7 in the early-November survey from 97.8 in October and 93.9 in September, a couple of sizeable gains for this indicator.

The reading over 100 shows that “optimists have outnumbered pessimists” for only the third time in the past 21 months, Mr Evans said.

But 101.7 is still nothing to write home about.

Over the past 20 years, the index has been above that level nearly twice as often as it’s been below it.

And it’s averaged 104.8 – well over the latest reading – for those two decades.

So the latest outcome was only a cracking result in the same sense that a light drizzle is a cracking result after a week of fierce storms.

And the reasons for the latest improvement, modest though it was, suggest the weather could turn bad again rather quickly.

The index is based on five components measuring consumers’ assessments of current and expected conditions for family finances and the economy, and whether it’s a good time to buy a major household item.

Much of the improvement in October and November came from a perception that the economy will pick up – the measures of expectations for the economy over one and five year horizons both surged in the past couple of months to their highest points since the time of the election in late 2013.

But assessments of how things are at the moment were not especially upbeat.

The survey’s gauge of family finances remained in the doldrums and the measure of expectations for family finances dropped to one of the lower readings since the shock of the May 2014 budget.

Mr Evans suggested that may have been because of moves by the banks to lift their home loan rates in late October, but intense speculation at the time of the survey about a possible hike in the GST may have had an impact as well.

The bottom line is that confidence is up because people expect the wider economy to improve and not because they are experiencing good times right now.

So unless the economy delivers the goods, and fairly soon, confidence could easily go the way it did in the first few months of the Abbott government.


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